MEANING OF "CLIENTS' MONEY" ETC. (Hansard, 30 January 1979)

§ Mr. Neubert
I beg to move amendment No. 16, in page 14, line 7, at end insert 'or other sum of money'.

Mr. Deputy Speaker
With this we shall take Government amendment No. 7.

§ Mr. Neubert
A similar amendment was discussed in Committee and appeared to raise important issues which the Minister accepted as having a considerable degree of validity, namely, that the protection offered to the public in a transaction of house purchase should not be limited in terms of money to the deposit as defined alone but should extend to other sums of money for other purposes, such as insurance premiums, possibly advance payments of rent, or even repayments of a mortgage to a building society.
The Minister undertook to look at this point, but it appears from Government amendment No. 7 that he has been unable to bring forward anything that would meet that point in substance. That is to assume, of course, that amendment No. 7 refers to matters which have already been raised on an earlier amendment and does not go as far as we would have wished under the terms of our discussion in Committee.
It seems to us that, while the opportunity has been taken of providing protection for moneys entrusted temporarily by a client, a prospective house purchaser, to an estate agent, it should be possible to provide protection for such other moneys, apart from the deposit, which is, of course, the starting point of the Bill. It was the abuse of absconding with 1381 deposits that originally brought this need to the attention of the Department. Although there are other purposes to the Bill, it has always seemed to me that protection of deposits is a crucial factor in it. Certainly it defines those estate agents who are affected by the Bill in such terms.
We are, therefore, considerably disappointed that it appears, from what has transpired since the Committee stage, that it has not proved possible to move in the direction that we wished to move. Before making any further comments on that, I give the Minister an opportunity of saying what his considerations have brought out since the Committee stage.

§ Mr. John Fraser
Those conclusions have partly resulted in Government amendment No. 7, which is consequential upon Government amendment No. 1, so that a deposit paid in relation to the goodwill of mixed business and residential premises would be caught and would have to be dealt with under the client account rules, and would have to be covered by the bonding arrangements.
I looked again at the matters I promised to consider—for instance, insurance premiums and repayment of a mortgage. But I am sure that the advice I gave to the Committee was correct. In many instances, where there is payment of an insurance premium or the payment of a sum to a building society, the agent is acting truly in the legal sense of the word as the agent for the insurance company or the building society, and the protection that is extended to house purchasers in the Bill would not be necessary. When one comes to money paid by way of advance rentals, much the same consideration applies.
There are other connections in which estate agents receive or collect moneys, such as the collection of ground rents—or feuduties, as I think they are called in Scoland—and there one could extend legislation to require the keeping of client accounts and bonding in such circumstances, but if one did that it would be going far beyond the intentions of the Bill, which were to protect the house buyer. It would, in effect, be starting to regulate relations between landlord and tenant or landlord and agent, but protecting the landlord rather than the consumer.
1382 In part, I have not done anything about this matter because it is not one for me. When one goes into that area of landlord and tenant and management functions, one is entering upon questions which are very much for the Department of the Environment. I am not saying that simply to pass the buck, but, as I said in Committee, the Department of the Environment has been conducting a study into these matters.
It is really for those reasons—because one would be extending the Bill into another area—and also for public expenditure reasons and limiting the amount on enforcement effort necessary that I have not, after consideration, taken the Bill further than the modest Government amendment now under discussion.

§ Mr. Neubert
Perhaps I might remind the Minister of what he said on this matter in Committee. He made the criticism that the amendment then, as now, was rather vague, and that is not in argument between us. This is a means of raising the issue, and it is not intended to be a piece of carefully considered drafting. Then, having made that criticism, the hon. Gentleman said: I think that, in order to command certainty, the best way of dealing with the matter would be to have an amendment to clause 12 which would enable the Secretary of State to specify other classes of money which would be treated as clients' money for the purpose of the operation of the client account rules. I am sorry to resort to the formula of a regulation, but I believe that that would enable us—indeed, give us the obligation—first to consult the estate agency profession and to define fairly carefully the sort of sums that we have in mind. On that basis, I should be grateful if the hon. Member would withdraw his amendment."—[Official Report, Standing Committee E, 5 December 1978; c. 113.] The Minister then gave the undertaking to look at another method of trying to define other classes of money.
It remains a matter of regret that the Minister has not been able to come any of the way along this line. Of course, what he has said in response to the amendment tonight goes far beyond what was perhaps even intended at the time. What we had in mind in supporting the amendment in Committee was that at the time of the transaction for house purchase there may well be other sums not strictly a deposit which are at that time entrusted to the estate agent and deserving of the 1383 same protection which the deposit will have under the Bill.
For example, there may be a repayment on a mortgage—the first repayment—and the estate agent may have been active in setting up the arrangement for the mortgage in the first place and agreed to pay the first instalment on behalf of the client. Equally, the agent might be required under the terms of the sale of a property to ensure that it was insured from the outset and so might accept money from the client to make certain that the first instalment of insurance premium was paid.
One is not here asking for continuing protection in respect of a mortgage over 25 years, say, or in respect of rental payments over a 14-year lease. What is in mind is sums of money, possibly cash, handed over at the time the house is being purchased and entrusted to the estate agent, which we believe should be protected. If the Minister had come forward with a proposal for regulations to define these other classes of clients' money, we would not have hesitated to accept that this was likely to be technical and unsuitable for inclusion in the Bill. But it is disappointing that he can offer nothing but the very limited amendment on the Amendment Paper, which is consequential on the mixed hereditament amendment that he has already moved.

§ Mr. Bendall
I accept the Minister's comments on continuing premiums or mortgage payments, money paid to an estate agent that is being passed on to a building society. But the danger lies on the first premium or mortgage repayment, which might go to the estate agent before it has been completed with the building society or insurance company at the time of the purchase of the property. That is what my hon. Friend the Member for Romford (Mr. Neubert) is putting forward, and I accept his view. There is a danger at this point.

§ Mr. Alexander Fletcher
This is an important part of the Bill which is trying to offer the public protection in transactions on property. Money is the root of the doubts that the general public may 1384 have about their transactions. The Minister referred earlier to the modest first Government amendment. That does not touch the important matter of managing money.
This amendment is perhaps inadequate in the terminology that the Minister would require, but it tries to ensure that there are no loopholes in this clause in relation to clients' money. With that in mind, perhaps the Minister will reconsider his decision on it. It would help the general purpose of the Bill to have some words added here which would be all-embracing for financial transactions.

§ Mr. John Fraser
One does not promise to look at something and then does not do so. I have looked at it. The main areas that we identified were payments to a building society and payments by way of an insurance premium. One can think of others, but to embrace them would make the scope of the Bill so wide as to make it a different measure altogether.
In those two areas, I am satisfied that the agent would be acting legally as the agent. In those circumstances, a right of action would lie against the building society or the insurance company, and there would be redress. Somebody may fraudulently represent himself as acting for a building society when he has no authority. That would be a serious criminal offence. Protection cannot be extended to double-bank against every possible criminal offence. Generally speaking, there would be a right of action where a person was acting as an agent for those institutions. I am satisfied that there would be adequate protection for the smaller payments as well as the main protection for the deposit.